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6 Bullish Ideas To Consider From This Underachieving Hedge Fund

Written by: Kapitall02/13/13 - 12:36 PM EST

Tickers in this article:
AIG C CAT CMG NFLX

The underperformance by 88% of hedge funds last year showed that a bad bet could sink the total performance. Making a macro call that does not play out could also lead to a return that does not beat the widely-followed S&P 500 index. What may be said about a fund that barely breaks even for the year? Whitney Tilson unfortunately underperformed the S&P 500 by 17.7%. Tilson lost 1.7%, while the S&P 500 rose 16% in 2012. Since inception, Tilson returned 110.6%, beating all other indices including the Dow Jones. [More lists: Traders are Optimistic About These Dividend Tech Stocks]

In his letter to shareholders, Tilson mentioned a number of approaches that could mean outperforming the markets once again in the future.

- Focus is on the long term
- Returning to roots
- Conservatively positioning portfolio with top ideas

(1) Netflix (NFLX) is an example of a strong investment. Previously betting against the company, Tilson changed his mind – correctly – after deciding he liked its business model. Tilson said in 2012 that the company "has a light business model and can tap the large international markets."

Tilson covered his bearish bets in (2) Chipotle (CMG) and (3) Caterpillar (CAT) in December 2012. He was not confident in betting against the business in the long term, but analyzed at the time that both companies faced headwinds that were not yet priced by the markets.

(4) Berkshire is a core Tilson holding. He believes the company trades below its intrinsic value of $180,000 per share. A share buyback by Berkshire was raised to 1.2x book, which lowers the downside for holding the company.